Europe, PayPal and SWIFT

Running around the conference and exhibition hall madly today and it’s no wonder that SIBOS already feels like a week, even though it’s only been a day. A hard day’s night as they say.

After meeting a few folks, chatting and networking, I dropped into the "CSDs and Custodians – Adapt or Die" session. This is because I’m writing a huge report on this subject right now, and watned to hear what was being said.

One of the panellists made a comment that investors invest locally and not across borders, and so the big changes of the Code of Conduct, T2S and the LinkedUp Markets project was a huge expense that would drive up costs and limit choices for domestic investors.

I didn’t like that comment and so asked the question, "don’t you think that this is the reason why the Commission wants to implement change, so that investors start investing in a pan-European structure easily, rather than being limited to domestic choices".

The panellist, David Penrose from Unicredit, came back with the fact that behaviours will have to change first and used Austria as the example. Austrian investors are a small pool of liquidity, less than 20 percent of the population, and they invest in Austrian companies through the Austrian exchange. Czech consumers invest in European stocks, he counter-acted, because their choice local equity options are limited.

Therefore, the pan-European investor is far more likely to be Czech than Austrian.

For the short-term he may be right, but the point of the changes being implemented in Europe right now is to get everything to be borderless in the Eurozone … so before you know it, Austrians might even be investing in German companies!

The debate moved on, but the best part was Dominic Hobson’s voting system.

Dominic, the Editor of Global Custodian and someone who proved to be quite a wit, used this hi-tech voting system of a green card for yes and a red card for no.

"Is T2S good for CSDs?" he asked. The majority of the audience said no.

"Is T2S good for Custodian Banks". Yes (big majority).

"Is the LinkedUp Markets project just a mess of spaghetti?" This divided the audience, with most saying it’s more like lasagne, as in it is structured access rather than hard-wired access.

"Is the Code of Conduct overtaken by T2S and LinkedUp Markets, e.g. it is no longer needed?" No.

After this healthy debate, and there was a lot more to it, I had lunch with PayPal.

Many of you know that I like PayPal, especially as I buy lots of stuff on eBay.

And everytime I talk to PayPal at SIBOS, the question comes up: "could PayPal be a SWIFT for low value payments" or "could SWIFT be a PayPal for low value payments".

I think I finally answered this question today, as PayPal is more like the telecoms model of transactions, whereas SWIFT is more like the telecoms network.

What I mean by this is that if I’m BT or AT&T, I don’t care who is on my network as long as they drive up volume and minutes on the network. Therefore, the fact that PayPal partner with many of the largest Global Transaction Services business globally is great. For these bank partners, they drive up huge volumes of transactions on the network, and this is great business. However, SWIFT do not do this.

SWIFT create services for and upon the network. Therefore, SWIFT’s aim is much more to make the network more functional for the operators, rather than focusing on volume on the network … although the more volume on the network, the better it is for pricing and rebates of course. But the pricing and rebates is a result of the users of the network offering that functionality to their clients, such as PayPal.

Makes sense to me.

Now I’m off to see some more exhibitors, and gear up for the short stretch between lunch and the cocktail hour.

About Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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Your old mate Bob

Chris,
SWIFT uses others networks and seeks to aggregate volume through driving applications strategy. You have to wonder if this self perpetuating club really adds any value given that APIs now exist for most major applications and security is a given without bilateral key exchange. Paypal shows that the exchange of value is possible without having to implement SWIFT at every end point. Enjoy the champagne while it lasts.